Simply put, Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child’s education or planning for retirement, disability or long term care. The financial planning process as defined by the CFP Board, (A professional regulatory body that certifies individuals to use the CFP® Certification marks) consists of six steps that help you take a "big picture" look at where you are financially. Using these six steps, you can workout where you are now, what you may need in the future and what you must do to reach your goals. It’s our job to assist you the client in first qualifying, then quantifying your goals and objectives and then to create a plan of action that will serve as a "road map", if you will, to guide you along the road towards financial security. Remember though, the road map is only as good as the cartographer and it is you, the client that will need to soul search and decide upon the path you wish to travel towards a better future.
When working with Taylor & Associates, the design and implementation of a comprehensive financial plan is generally a six step process
ESTABLISHING AND DEFINING THE CLIENT / PLANNER RELATIONSHIP. At the initial client meeting we clearly explain and document the services to be provided to you and define both our, and your responsibilities. We fully disclose in writing how we will be paid and by whom. This disclosure is made through the ADV Form Part II, a document every Registered Investment Adviser is required to give to any new client prior to performing any services. California law also requires the execution of a written financial planning and investment advisory agreement before any services are provided. This legal requirement protects both the integrity of the process since often a planner has nothing but his superior knowledge to offer, much like an attorney, and it protects the client in that the information provided can be relied upon. Registered Investment Advisers are held to a fiduciary standard of care when offering financial planning services for a fee in this capacity. A fiduciary relationship between two parties is created when trust or confidence is reposed by one and accepted by the other and a confidential relationship exists whereby one trusts in and relies on another. As such, fiduciaries are required to place the interests of their clients before their own in all things.
GATHERING CLIENT DATA, INCLUDING GOALS. This stage is the most important stage in the process. Remember the adage, "garbage in, garbage out". It is important that each client provide us with accurate data and think carefully about what they hope to gain from the financial planning process. We will mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. It is essential that you the client gather and deliver all the necessary documents to assist us.
ANALYZING AND EVALUATING YOUR FINANCIAL STATUS. Once we have gathered sufficient information and fully understand your aims and goals, we will analyze your information to assess your current situation and determine what you must undertake to meet your goals. Depending on what services you have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverages, investments or tax strategies, retirement, estate and asset protection planning*.
DEVELOPING AND PRESENTING FINANCIAL PLANNING RECOMMENDATIONS AND/OR ALTERNATIVES. We will then make recommendations that address your goals, based on the information you provide. We will review the recommendations with you to help you understand them so that you can make informed decisions. Of course, we will also listen to your concerns and revise our recommendations as appropriate.
IMPLEMENTING THE FINANCIAL PLANNING RECOMMENDATIONS. As part of establishing and defining the relationship, we will have already decided how any recommendations are to be implemented. Generally and because we possess all the necessary licenses and / or registrations, we can assist in the implementation process, carrying out our recommendations or serving as your "coach," coordinating the planning process with you and other professionals such as attorneys and accountants.
MONITORING THE FINANCIAL PLANNING RECOMMENDATIONS. We undertake whenever possible to monitor your progress towards your goals. We will periodically review your situation and adjust our recommendations, if needed, as your life changes. To this end, it is essential that you keep us informed of any changes in your lifestyle, employment, family situation etc.
Here are a few considerations when approaching Financial Planning with our firm:
- Set measurable goals.
- Understand the effect your financial decisions have on other financial issues.
- Reevaluate your financial plan periodically.
- Start now; don’t assume financial planning is for when you get older.
- Start with what you’ve got; don’t assume financial planning is only for the wealthy.
- Take charge; you are in control of the financial planning engagement.
- Never lose sight of the big picture; financial planning is more than just retirement planning or tax planning.
- Don’t confuse financial planning with investing.
- Don’t expect unrealistic returns on investments. (Manage and develop "reasonable" expectations, we’ll manage the money!)
- Don’t wait until a money crisis to begin financial planning.
You are the focus of the financial planning process. As such, the results you get from working with a financial planning firm like Taylor and Associates are as much your responsibility as they are are ours. To achieve the best results from your financial planning engagement, you will need to be prepared to avoid some of the common mistakes by considering the following advice:
SET MEASURABLE FINANCIAL GOALS. Set specific targets of what you want to achieve and when you want to achieve results. For example, instead of saying you want to be "comfortable" when you retire or that you want your children to attend "good" schools, you need to quantify what "comfortable" and "good" mean so that you’ll know when you’ve reached your goals.
UNDERSTAND THE EFFECT OF EACH FINANCIAL DECISION. Each financial decision you make can affect several other areas of your life. For example, an investment decision may have tax consequences that are harmful to your estate plans. Or a decision about your child’s education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.
REEVALUATE YOUR FINANCIAL SITUATION PERIODICALLY. Financial planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your financial plan as time goes by to reflect these changes so that you stay on track with your long-term goals.
START PLANNING AS SOON AS YOU CAN. Don’t delay your financial planning. People who save or invest small amounts of money early, and often, tend to do better than those who wait until later in life. Similarly, by developing good financial planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to meet life changes and handle emergencies.
BE REALISTIC IN YOUR EXPECTATIONS. (OUR PERSONAL FAVORITE) Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight; it is a lifelong process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your financial planning results.
REALIZE THAT YOU ARE IN CHARGE. To get the most from your relationship with Taylor and Associates, be sure you understand the financial planning process and what we as planners should be doing. Be sure to provide us with all of the relevant information on your financial situation we need in order to do our job. Ask questions about our recommendations and, absolutely, play an active role in decision-making process.
Why work with a CFP® Certificant?
There are literally hundreds of "designations" people use to market their practice in an effort to gain an edge over the competition. Many of these designations are for all intents and purposes worthless, can be obtained in one to three days with little or no work at all and are marketing tools rather than professional credentials. Many designations, particularly those that profess competence to assist senior citizens often have no probative value whatsoever and are obtained by insurance agents in order to peddle unsuitable annuities with many years of premature use charges. In fact, the situation is so grim that many States have already introduced regulations preventing insurance agents from utilizing any designation in public practice that contains the word "senior" or suggests expertise in assisting the elderly (Certified "Senior" etc. "Elder" Planning etc.)
CFP® Certification, however, is the most widely recognized and accepted Certification mark for competence in comprehensive financial planning worldwide. Certificants must complete a rigorous course of education that takes an average of two years to complete, must pass a ten-hour, proctored comprehensive written examination, have a bachelor’s degree and at least three years experience working in the field of financial planning and must also sign and abide by the code of ethics and standards of practice promulgated by the Certified Financial Planner Board of Standards.
But I Can’t Afford A Financial Planner!
"I’m not rich, I can’t afford to hire a CFP® Certificant!" I often hear this statement, particularly at seminars where many less affluent consumers participate in order to gain a little better insight into the financial planning process. If commissioned salesmen were to fully disclose their compensation to you, I think you would be shocked to hear how much they actually earn for non-fiduciary sales advice that does not, by law, need to be in your best interest. (Example, a $100,000 Equity Index Annuity sale can bring a commissioned insurance agent as much as $9 - $11,000 in commissions, not bad for a couple of hours work and no fiduciary liability!) There is no reason why any consumer should accept anything less than competent advice from a well trained planner who is paid to provided objective and unbiased advice. Over 70% of all CFP® Certificants began their careers in the insurance or stock brokerage business and, after recognizing the need to provide more comprehensive services to their clients, made a commitment to their profession by obtaining CFP® Certification and agreeing to abide by a stringent code of ethics. Who better then to provide you with even the simplest of financial services such as insurance or mutual funds etc. than a CFP® Certificant with years of experience and an extensive background in these areas.
Comprehensive Financial Plans Are Expensive!
True, complex plans for high net worth individuals can be expensive but then, the savings in terms of taxes etc. are also huge in relation. Our firm also offers more limited financial planning services to lower and middle income professionals. In other words, if all you need is advice regarding a decent 529 Plan for your child’s college education, or a life insurance policy to cover your total liabilities in the event something happens to you, we can limit our services by modifying the client agreement to those particular areas. "Modular" financial planning makes sense and consumers from all walks of life are able to afford the luxury of a competent and qualified professional. Furthermore, because you have chosen to work together with a CFP® Certificant now, rather than just an insurance salesman or stockbroker, you will find our expert guidance and ability to deal with problems and issues some lesser trained planners may fail to recognize will pay dividends in the long run.
If you are in need of competent Investment, Financial, Retirement or Estate Planning, please contact us today.
Excerpts of this article taken from "What You Should Know About Financial Planning" Copyright ©1994-2009, Certified Financial Planner Board of Standards, Inc. All Rights reserved. Used with permission.
*Asset Protection planning has nothing to do with investing in regulated securities, nor should asset protection planning be construed or interpreted as any promise or guarantee of performance with regard to any invested assets. Asset Protection is a method of arranging tangible assets and real property in a way that will, hopefully, preserve as much value as possible for individuals and their families in the face of creditor attack.